Correlation Between Gulf Energy and Earth Tech

Can any of the company-specific risk be diversified away by investing in both Gulf Energy and Earth Tech at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gulf Energy and Earth Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gulf Energy Development and Earth Tech Environment, you can compare the effects of market volatilities on Gulf Energy and Earth Tech and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gulf Energy with a short position of Earth Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gulf Energy and Earth Tech.

Diversification Opportunities for Gulf Energy and Earth Tech

-0.46

Correlation Coefficient

Gulf Energy  Earth Tech

Very good diversification

The 3 months correlation between Gulf and Earth is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Energy Development and Earth Tech Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earth Tech Environment and Gulf Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Gulf Energy Development are associated (or correlated) with Earth Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earth Tech Environment has no effect on the direction of Gulf Energy i.e., Gulf Energy and Earth Tech go up and down completely randomly.

Pair Corralation between Gulf Energy and Earth Tech

Assuming the 90 days trading horizon Gulf Energy Development is expected to generate 0.86 times more return on investment than Earth Tech. However, Gulf Energy Development is 1.17 times less risky than Earth Tech. It trades about -0.01 of its potential returns per unit of risk. Earth Tech Environment is currently generating about -0.14 per unit of risk. If you would invest  6,400  in Gulf Energy Development on September 13, 2024 and sell it today you would lose (75.00) from holding Gulf Energy Development or give up 1.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Gulf Energy Development  vs.  Earth Tech Environment

Gulf Energy Development

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Energy Development are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Gulf Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Earth Tech Environment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Earth Tech Environment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Gulf Energy and Earth Tech

The main advantage of trading using opposite Gulf Energy and Earth Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gulf Energy position performs unexpectedly, Earth Tech can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Earth Tech will offset losses from the drop in Earth Tech's long position.

The idea behind Gulf Energy Development and Earth Tech Environment pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.